If you have teenage children or grandchildren with part-time jobs, there's a tax-favored way to help them save money for college, a first home -- and even retirement. By socking away some of their earnings in a Roth IRA, your youngsters can begin a savings plan that can grow into a small fortune. 

Roth IRAs, which first became available in 1998, are considered by many financial experts to be "too good to be  true" because they allow earnings to build up tax-free. You don't get a deduction for your contributions, but any withdrawals made after age 59 and 1/2 are tax-free, as long as the account has been open five years. 

What do retirement accounts have to do with your children and grandchildren? Young Roth IRA account holders have more time to build up a tax-free stockpile. And money placed in a Roth IRA isn't necessarily locked away until retirement. The tax law allows money to be taken out in special circumstances, which include:

College costs. There is no 10 percent early withdrawal penalty due on any funds taken to pay higher education expenses for the IRA holder, or the person's spouse, children or grandchildren.

First-time home buying costs. No early withdrawal penalty is charged on up to $10,000 if the money is used to purchase or construct a first home.

In both exceptions, the account holder may have to pay income tax on the withdrawals but no penalties.

Who is eligible to open a Roth IRA? For 2013, anyone with earned income can contribute up to $5,500, as long as the income eligibility requirements are met (up from $5,000 in 2012).

So your children and grandchildren with part-time jobs are able to fund Roth IRAs based on their earnings. Of course, with clothes, cars and CDs to buy, the last thing kids want to do with their cash is put it away for practical purposes. But the money doesn't have to come from their own pockets! As long as the children have earned income, their parents or grandparents can give them the money to put into Roth IRAs.

For example: Let's say your 16-year-old daughter has a part-time job that pays $6,000 a year. The job makes her eligible to put $5,500 into a Roth IRA for the 2013 tax year. You can give her $5,500 to start an account at a bank or investment firm.

Next year, as long as your daughter keeps working, you can put up the maximum amount allowed for that year into her account. (She can only contribute up to the amount she earns.) In fact, if you and your spouse meet the income limitations, you can each set aside the maximum amount allowed in your own Roth IRAs and fund Roth accounts for your working children.

That way, the kids get to keep their hard-earned money and your family builds several tax-sheltered nest eggs for the future.